Vollmar rejoins, "Look, these acquisitions don't pay for themselves. The way you pay for them is you cut expenditures, you cut people, and you consolidate." Compounding the frustration was the fact that Walbro had done well by its shareholders. Between 1981 and 1987 the stock had appreciated 1,000%. Vollmar's sense of fair play, like Althaver's -- like everyone else's at Walbro -- had been threatened. "I feel that what we had here was a group of people who were out to steal the company at an unfair price and pillage it after they had it."
The takeover threat couldn't have come at a worse time for Walbro, which was in the midst of drawing up a five-year plan and was also making a strategic -- and friendly -- acquisition of Whitehead Engineered Products Inc., in Meriden, Conn. The UIS deal cast an immediate cloud over that. "We were told by Whitehead," Vollmar says, " 'If you're acquired by UIS, we don't want to have anything to do with you.' "
* * *
On the morning of Monday, September 14, 1987, a team of investment bankers from Goldman Sachs arrived at Walbro. For the next four days they worked from 6:00 in the morning until late at night, studying the company, computing future cash flows and market prospects to arrive at a sound idea of Walbro's potential worth. Based on a confidential per-share figure that Gary Vollmar claims "wasn't even close" to UIS's offer, Goldman pronounced the $27.25 per-share bid "inadequate."
Goldman, meanwhile, had told Walbro that the company would inevitably be sued by stockholders eager to cash out and by UIS wanting much, much more. Hire the best to defend you, the firm advised. Althaver signed up the noted mergers-and-acquisitions law firm of Wachtell, Lipton, Rosen, & Katz. The fee would be $400,000 -- modest compared with those charged Fortune 500 companies, which often range into the millions.
By now the tender offer had drawn another layer of middlemen into the hunt. These were the arbitrageurs who trade stocks short-term, betting on potential takeovers. With the "arbs" now speculating, Walbro stock was in play, jumping from $22.50 in late August to $30 when news of the tender offer broke on September 9.
Some 3.5 million shares of Walbro common stock were outstanding, and Walbro's task in the 20 business days before the tender offer expired was to put 51% of those shares in friendly hands. Goldman Sachs, through a computer model, calculated that about 1 million of the shares, roughly 30%, had already fallen into the hands of the arbs. In 20 days, when the clock ran out and the game was over, those shares would be tendered to the highest bidder -- presumably UIS.
But Andrew Pietrini had discounted the bond that Wally Walpole had forged with the people of Cass City. Much of the original stock that he had sold to residents 33 years earlier remained in the same loyal hands. This block comprised about 13% of the outstanding shares. When Walbro asked these shareholders to sign an agreement not to sell their shares for 15 months, virtually all complied. The temptation to do otherwise must have been intense by now. Many of these investors had paid a dime a share for stock the market now valued at about $30. One Cass City resident did unload $120,000 worth of Walbro stock -- but he sold to a neighbor in a private transaction.
The community's stake plus the 17% held by Walbro's managers and directors put roughly 30% of Walbro's shares in friendly hands. How could the company control another 21%?
Two options presented themselves, and neither seemed palatable. One was to take the company private in a leveraged buyout. But that would only saddle Walbro with more debt, when it was already borrowing for future expansion. The second course was to pursue a self-tender, buy up shares on the open market and retire them -- take the shares out of circulation -- in order to shrink the total pie. For Walbro to simply buy and hold the stock would have been fruitless. Corporate, or treasury, stock does not carry voting rights.
Buying back and retiring enough stock -- 1.5 million shares -- for a successful self-tender meant taking on a mountain of debt with no clear assurances of keeping control. Walbro itself would become another player in the bidding war, a contest that could raise the price beyond Walbro's means and force the board to accept a higher -- and adequate -- offer.
The company would then be lost for sure.
* * *
The stock-market crash of 1987 made apparent the power of technology to magnify the greed and fear that lurks within the financial system. October 19 will be remembered not as the day the U.S. economy collapsed -- for it didn't. It will be recalled as the day the computers, hell-bent on program trading and insuring portfolios, ran amok.
Coexistent with that legacy are the enormous databases that Wall Street commands. "There are now powerful technologies for gleaning financial information," says Martin Sikora, editor of Mergers & Acquisitions magazine. "The computer has put more information into the hands of more people." Publicly traded companies, no matter how obscure, can be called up instantly on computer screens, ready for scrutiny and imaginary breakup by the greenest of B-school recruits. "The whole range of companies is combed through very carefully," says Martin Carmichael, of Goodwin, Procter & Hoar, a Boston law firm. He helps companies devise strategies for dealing with unfair takeover tactics. "There are so many people out there now looking for deals."
What's more, the money available to do such deals now dwarfs the number of deals that would be worthwhile. Boston University's Allen Michel calculates that there is about $250 billion in leverage currently available in the country for buyouts. "In the past these investment and merchant banks have had a lot of deals flow their way," he says, "but now the deal flow has slowed down compared with the money available for investment. Now, they have to go out and find the deals."
The Japanese, meanwhile, have invested widely in a number of U.S. investment and merchant banks. Take, for example, Walbro's former defender, John Sheldon, who now works for The Lodestar Group, an LBO firm that is partially owned by Yamaichi Securities, Japan's fourth largest brokerage house. The name on his business card is in both English and Japanese.
